When global tensions rise, defense stocks are often seen as strategic investments.
In such uncertain times, governments around the world increase defense spending to improve military readiness, modernize technology, and protect national interests. One company that stands to benefit significantly from this trend is General Dynamics (GD), an American aerospace and defense company that supplies a wide range of products and services to the U.S. government and its allies.
Valued at $75.4 billion, General Dynamics stock has gained 8.9% year-to-date, outperforming the broader market gain of 3.5%. Given the rising demand for defense products and services, Wall Street sees more upside in GD stock.
Is GD a buy now?
About General Dynamics Stock
General Dynamics operates through four major business segments:
- Aerospace
- Marine Systems
- Combat Systems
- Technologies
Each of these divisions contributes significantly to revenue and ensures diversification, which protects against downturns in any one market. General Dynamics reported first-quarter revenue of $12.2 billion, up 13.9% year-over-year, reflecting broad-based strength across all four operating segments. Earnings per diluted share came in at $3.66, up an impressive 27.1%, thanks to a favorable mix in Aerospace and disciplined cost control across all business lines.
The Aerospace segment performed exceptionally well in the first quarter. Revenue increased 45.2% to $3.03 billion, driven by a 50% increase in aircraft deliveries, including the long-awaited G700.
The Combat Systems segment generated $2.18 billion in revenue, up 3.5% year-over-year. This modest increase was because of steady demand for Abrams tanks, Stryker vehicles, and international programs. In the Marine Systems segment, revenue rose 7.7% year-over-year to $3.6 billion, driven by ongoing work on the Columbia-class ballistic missile submarines, Virginia-class fast attack submarines, and DDG-51 destroyers. The Technologies segment, generated $3.43 billion in revenue, up 6.8%. The segment also received significant orders in the quarter, with a book-to-bill ratio of 1.1x, indicating strong demand for secure IT solutions, cyber defense, and mission-critical infrastructure.
During the earnings call, management noted that the pace of contract solicitations and awards has been inconsistent due to shifting federal spending priorities. Despite some stop-work orders and minor contract delays, Aiken emphasized that the 2025 outlook remains unchanged, and General Dynamics is well-positioned with a conservative backlog and high confidence in its pipeline.
General Dynamics ended Q1 with a total backlog of $89 billion, reflecting its diverse long-term customer commitments in the defense and technology sectors. However, the quarter was not without financial challenges. Free cash flow came in at negative $290 million, primarily due to inventory buildup across major programs and the timing of milestone receipts. Despite this, General Dynamics remained committed to shareholder returns. The company returned $983 million to shareholders in dividends and share repurchases, demonstrating its belief in its long-term cash generation capabilities.
General Dynamics offers a forward dividend yield of 2.1%. With a 34-year track record of dividend increases and a reasonable payout ratio of 35%, GD is also a Dividend Aristocrat. This makes GD appealing not only to growth, but also to income-oriented investors. Capital expenditures for the quarter totaled $142 million, reflecting continued investments in production capacity, digital transformation, and innovation, particularly in aerospace and shipyard infrastructure. At the end of the quarter, General Dynamics had $1.2 billion in cash and equivalents and $9.6 billion in total debt.
While working capital constraints and tariff uncertainty present challenges, the company’s backlog remains strong, margins are improving, and customer demand and a diverse client base indicate continued resilience. Furthermore, shareholder returns remain strong, and management has set a positive tone for the remainder of the year.
Analysts predict that General Dynamics’ earnings will rise by 9.6% in 2025, and by another 11.8% in 2026. Priced at 18x forward earnings, General Dynamics appears to be a reasonably valued growth stock.
What Does Wall Street Say About GD Stock?
Overall, the Street rates it a “Moderate Buy.” Out of the 22 analysts covering the stock, eight have a “Strong Buy” rating, 13 rate it a “Hold,” and one says it is a “Strong Sell.” The average target price for the stock is $292, which is close to its current trading price. Its high price estimate of $330 suggests the stock can climb by 15.4% from current levels.
